Planning Ahead

April 6, 2012

By Nevin Adams, EBRI

Adams

April is Financial Literacy Month, and National Retirement Planning Week, sponsored by the National Retirement Planning Coalition (of which EBRI’s America Savings Education Council (ASEC) is a member) is April 9–13. Both events serve to remind us all of the importance not only of saving, but of establishing specific goals for saving.

I was pleased, therefore, this past month to help one daughter set up her first SEP-IRA—and even more pleased to about the same time learn that my other daughter was, of her own volition, making a conscious effort to set aside what seemed to her father to be a fairly substantial portion of her modest income in savings. These are things I knew to do when I was their age, of course, but things I must admit took me a few years to act on.

It’s easy, in the normal press of life, to put off thinking about retirement, much less thinking about saving for a period of life many can hardly imagine. We all know we should do it—but some figure that it will take more time and energy than we can afford just now, some assume the process will provide a depressing, perhaps even insurmountable target, while others don’t even know how to get started (see Goals Tending, online here).

Here are five reasons why you—or those you care about—should save for retirement now:

Because you don’t want to work forever.

If you want to stop working one day, you are going to have to think about how much income you will need to live after you are no longer working for a paycheck.

Because living in retirement isn’t free.

Many people assume that expenses will go down in retirement—and, in fact, a recent EBRI Issue Brief noted “With the age 65 expenditure as a benchmark, household expenditure are lower by 19 percent by age 75, and 34 percent by age 85….” On the other hand, there are changes in how we spend in retirement as well—and they aren’t always less. That same EBRI report notes that health-related expenses are the second-largest component in the budget of older Americans, and a component that steadily increases with age. “Health care expenses capture around 10 percent of the budget for those between 50–64, but increase to about 20 percent for those age 85 and over.” And those spending shifts don’t take into account the possibility of a need or desire to provide financial support to parents and/or children.

Because you may not be able to work as long as you think.

Twenty-five percent of workers in the 2012 Retirement Confidence Survey say the age at which they expect to retire has changed in the past year. In 1991, 11 percent of workers said they expected to retire after age 65, and by 2012 that has more than tripled, to 37 percent. Those expectations notwithstanding, half of current retirees surveyed say they left the work force unexpectedly due to health problems, disability, or changes at their employer, such as downsizing or closure (see “The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings”).

Because you don’t know how long you will live.

People are living longer and the longer your life, the longer your potential retirement, particularly if it begins sooner than you think. Retiring at age 65 today? A man would have a 50 percent chance of still being alive at age 81 (and a woman at age 85); a 25 percent chance of living to nearly 90; a 10 percent chance of getting close to 100. How big a chance do you want to take of outliving your money in old age?

Because the sooner you start, the easier it will be.

What are you waiting for? A good place to start is the BallparkE$timate,® and with the other materials available at www.choosetosave.org

More information about National Retirement Planning Week is available online here.

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